What is a Value Chain?

Definition: The value chain is the series of processes in a manufacturing system that adds value to an end product. In other words, the value chain consists of production processes that improve the function or usefulness of a product.

What Does Value Chain Mean?

In a manufacturing process, companies take many different steps to make their products. These steps usually fall into three main activities: material activities, production activities, and sales activities. All three of these steps make up the value chain.

Material activities deal with raw materials. Companies purchase the raw materials and begin prepping them for the manufacturing processes. Production activities include all the steps of actually producing or manufacturing the products. This could include machining and testing products. Sales activities happen after all the products are fully manufactured. In other words, sales activities only deal with finished goods. These activities can include marketing and promotion activities.

Example

The value chain is made up of all three of these activities. The value chain consists of all the processes or activities that companies use to add value to their products. The material activities add value by acquiring raw materials and getting them ready for production. The production activities add the most value to the products because the production activities actually produce the products. Sales activities add little value to the end product. Since sales activities only help sell finished goods, the products aren’t actually changed. It’s arguable that marketing does add value to products in the consumers’ minds.

Some activities don’t add any value to a product. Moving and storage are good examples. Companies have to pay for storage warehouses and employees to move and store their finished inventory. These processes don’t change or add value to the end products. That’s why they are not included in the value chain.